COLUMN: A Malat Musing: Something's New at the IRS?

At one such gathering a horrifying story was shared in the hopes of educating and protecting his three buddies from the same fate. We will call him Peter.

Peter had just completed an IRS audit.

It began with a request for Peter to provide all his records in support of his last three IRS filings. What it escalated into was a demand that Peter produce written documentation as to where every penny he deposited into his checking account and saving accounts had originated. The arduous chore could obviously not be accomplished to the IRS’s satisfaction. Therefore each and every penny that could not be adequately identified through written documentation as non-taxable was deemed as taxable income. There were of course the penalties and interest on all such money dating back as far as three years.

Coincidentally enough, when the IRS submitted their final bill to ole Pete it very closely resembled the exact amount he had in his passbook savings accounts, his savings certificates and his IRA accounts – for which additional taxes would be levied for early withdrawals.

Finished with the Feds he would now have to deal with the state. What was learned was that the state would have to become his first priority as they easily trumped the Feds when it came to viciousness in collecting their money.

What we also learned is that the cherished concept of innocent until proven guilty does not apply when dealing with the IRS. You are guilty until you can prove your innocence. There is no burden of proof the IRS must meet when making any accusation.

Which brings us to the crème de la crème of our tale. Peter naturally thought he had accurately filed and adequately met his tax burden over the years. As the frustration mounted over one unreasonable IRS demand after another Peter asked the big question; “Why are you auditing me? What red flags popped up on my returns?” The IRS agent handling his audit responded by saying; “There were no red flags. You have recently had surgery, gone through a divorce and left a long standing job. We like to take a look at anyone we find in your position.” None of that personal information was ever communicated to the IRS by Peter.

Peter’s story was validated in September of 1997. Congressional hearings were prompted by Katherine Hicks of Apple Valley, California when she decided to risk the wrath of the IRS by writing to Congress to end their harassment. What surfaced through testimony of former IRS agents as well as a line of citizens that would have stretched from Minneapolis to Poughkeepsie was that lower and middle income Americans were routinely targeted and subjected to Gestapo-style harassment and audits. These individuals where primarily targeted because they did not have the means to defend themselves and where therefore viewed as easy picking by the IRS.

IRS agent Jennifer Long testified; "I can personally attest to the use of egregious tactics used by IRS revenue agents which are encouraged by members of the IRS management. These tactics, which appear nowhere in the IRS manual, are used to extract unfairly assessed taxes from taxpayers, literally ruining families lives and businesses, all unnecessarily and sometimes illegally."

In 1998 some obviously inadequate laws were enacted to curb these abuses even though the Clinton administration opposed any effort to do so.

Now the media is all agog over suspected IRS targeting of political groups. This puerile, woe-is-me political whining and media frenzy centers around IRS § 501(C)4. The ambiguity in this law currently serves as a safe haven for the IRS, who may or may not have had a targeting agenda; as well as providing fodder for those who wish to create a controversy by charging that targeting occurred even if those activities never took place. This ambiguity exists because it is the exact climate our politicians want. It provides the IRS with the legal cover they need to continue to act autonomously as both judge and jury.

The IRS has long been the bully-boy of the American government. President Kennedy threatened an audit of the steel executives in 1962 when they refused to honor their agreement with the steel workers union. IRS audits are routinely conducted to harass organizations and individuals suspected of nefarious activities. It was the IRS that finally sent Al Capone to jail.

What we as a nation should be focusing on is a complete revamping and restructuring of our current tax laws, programs and system. Those reforms need to include the elimination or at the very least, a severe curtailing of IRS influence and power.

As long as our media and politicians are intoxicated by their own egos and self-indulgence thus refusing to honor their responsibility of promoting and protecting the general welfare and common good, we can expect nothing more than the same non-existent and insufficient reform we were left with in 1997.

Phil Malat is a columnist for KSTP.com blogging about the latest political news.